As I discussed with Ben Domenech in our podcast today, the timing of yesterday’s announcement of sweeping bank reforms had the bad smell of political motivation to it. After getting bruised badly in Massachusetts on Tuesday, it sounded like the President was trying to “turn the page,” as they’re wont to say in Washington.

Tim Geithner was dispatched yesterday evening to carry the flag to PBS television, where he gave a tight-lipped and plainly uncomfortable interview with Judy Woodruff. Asked about the timing of the announcement, he said that no, there was no politics involved. Rather, the announcement was made now in order to mesh with the legislative schedule in the Senate. He left the impression that if the Senate didn’t get the legislation now, there’d be no other time for them to do it.

Now that’s odd, because I thought the Senate was still in a boiled-over state about health care legislation. On Monday, White House people were talking about how to get that legislation passed even if Massachusetts voters urinated in the President’s Cheerios. Priorities change fast.

Asked about the point of the legislation, Geithner said it was to prevent another crash, IN ORDER that banks could get back into the business of creating credit so the economy can grow. The last time I checked, banks aren’t creating much new credit partially because of a lack of demand for credit in the weak economy, and partially because many are so illiquid and undercapitalized. But they’re not worried about crashing as long as they’re too big to fail. I didn’t hear Geithner go so far as to say that he intends to start exposing banks to the risk of failure again, which would indeed have been interesting.

Geithner also said another odd thing about the proposals: they would indeed require legislation. But from the way he danced around the issue, I got the impression that the legislation was needed primarily to give the Fed and Treasury officials power to make rules that would actually implement the reforms. In other words, we’re not going to get to discuss what actually will be done.

If this sounds familiar to you, you’re right. Hank Paulson asked Congress for similar open-ended rule-making authority several times during the crisis year of 2008. He got what he asked for, but it was clear to everyone that these were emergency powers intended to deal with fast-moving crises. They were strictly limited in time, and gave authorities (including then-New York Fed President Geithner) the ability to act freely when speed was of the essence. And of course, every such exercise was meticulously second-guessed by Congress after the fact.

But we’re not in an emergency now. Obama is asking Congress to give up some of their power to regulate the financial system permanently. That ought to go over real big on Capitol Hill.

Again in regard to timing, Geithner was asked: why only regulate banks and Wall Street firms? Why not Fannie, Freddie and AIG? He said that their turn will come next year. It will take time to get this right. It won’t be possible to get enough attention from Congress to do any more than the banks this year. That’s what he said. I heard it.

And on the substance of the reforms, Geithner seemed equally uncomfortable. He stressed two big things: one is to impose a size limit on banks, and the other is to keep them from getting into risky behavior.

Someone isn’t clear on the concept. America has no banks that are any larger than about $2 trillion by assets. (The largest, Citigroup, is sick and needs to be broken up, but not because it’s too big. Rather, it has too many problem assets, and too many books of business.) It’s not hard to find banks in other countries that are many times larger than our largest. Royal Bank of Scotland has nearly $10 trillion in assets. RBS isn’t healthy, but Deutsche Bank, HSBC and others are also much bigger than Citigroup, and they’re hanging in there.

And there’s another odd thing about how Geithner is thinking about size. Evidently they DON’T want to control banks’ asset books. They want to control their capital levels. That’s right: the President will ask Congress for the authority to decide that any given bank or Wall Street firm has too much in the way of non-deposit capital, and to force a bank to shed or restructure some of those liabilities.

Now what on earth can that mean? Well, Bear Stearns financed much of its asset base in the overnight repo market, and Lehman Brothers used the collateral pledged by its prime brokerage customers. Are we talking about restricting the ability of broker-dealers to use these sources of capital? Citigroup and others for decades have borrowed in the capital markets. Are they going to have to do less of that now?

It’s actually intelligent to look at short-term funding sources that are less “sticky” than traditional deposits, because these are exactly the capital sources that become rapidly impaired during panics. But it’s going to take a lot to get this right. After all, the SEC had been monitoring Bear Stearns closely right up till the day they got into major trouble, and had no problems with their capital levels.

And if you err on the side of caution, and more tightly regulate all this stuff on an everyday basis, then all you’re doing is making US banks less competitive against other global banks. And we have no idea whether this really solves the problem of preventing the next crisis.

Now that we’ve limited how banks can fund themselves, it’s on to limiting what banks may invest in. The President apparently wants to make it illegal for banks to own hedge funds or private equity firms. Ok, so that cuts out things like the Bear Stearns mortgage-backed asset funds that were the canaries in the coal mine in June 2007. It also arguably cuts all the “structured investment vehicles” that allowed Citigroup, Merrill Lynch and others to move so much risk off their balance sheets.

The SIV issue is real, and worth solving. But for the rest of it, what does it accomplish? So a bank may not own a PE firm or hedge fund. How do you think PE firms and hedge funds get the leverage they use to do their thing? By borrowing from syndicates of banks. This is a bread-and-butter business for banks. Unless Geithner intends to undermine the whole PE and hedge fund world, he doesn’t diminish systemic risk in any way by saying that banks may not own these vehicles directly.

Or is he saying that leveraged investment activities themselves are the source of the problem? Ok, let’s have that conversation out in the open. If you dial down leverage as a way of reducing the potential for uncontrolled systemic risk, you’re also dialing down overall returns in finance and the economy itself. (Which by the way implies higher unemployment.) And you’ll also need to do this on a global basis, not just here, for it to have the intended effect.

Geithner must be acutely aware of all these issues. I’m guessing that he was asked to take one for the team, going out on television to say stuff he can’t completely believe.